Supply Chain Frontiers issue #37
Are companies making a sufficient effort to ensure their supply chains are sustainable? Speakers at the MIT Center for Transportation & Logistics Crossroads conference, March 25, 2010, addressed this question. The general verdict was that companies need to take the design and management of supply chains to much higher levels to meet future sustainability demands.
One of the speakers, Mark Buckley, vice president of environmental affairs at office products company Staples, called it “transformational innovation scaled to make a difference.” People need to develop “peripheral vision about what is happening next,” he suggested.
Staples is certainly no laggard on the sustainability front. It is on track to meet the target it set in 2003 to achieve a 7% cut in its total carbon output by the end of 2010. And the company has done much to transform the markets in which it competes. For example, it “shifted the market dynamic” in the manufacture of paper products such as file folders by persuading suppliers to change the way they purchase materials, Buckley explained. The shift—initially dismissed as impossible by suppliers—opened the door to the production of folders that contain 30% post-consumer recycled paper. Staples convinced vehicle maker Isuzu to change proprietary software so the retailer could put a 60 mph speed limit on its delivery vans. The modification cost just seven dollars per vehicle, saved 1.1 million gallons of diesel fuel a year, added $3 million to the bottom line, and delivered an ROI in just 1.5 days, according to Buckley.
Yet, the world’s largest office products company aspires to joining what he described as an “emerging set of companies looking at what is good not only for business but also for the world, and tapping into new sources of value.” These enterprises are positioned at the higher end of the sustainability continuum. At the lower end, “compliance is the lowest common denominator, the price of entry,” says Buckley. Staples is somewhere in the middle, “at a forward stage of our journey” toward the top performers.
There is much potential for making up that ground. As Buckley pointed out at the event, Staples has achieved a great deal to make its own products and facilities more sustainable. However, these programs have reduced the organization’s greenhouse gas footprint by 7%; the rest resides in the products that the retailer sells, with the top four sales categories representing about 58% of the company’s overall footprint. “The reality is that it’s all about the supply chain,” he says.
There are a number of ways in which companies can make the kind of steep changes needed to set new standards in supply chain sustainability. One approach is to forge non-traditional partnerships with customers, suppliers, and other stakeholders. For example, partnering with NGOs (non-governmental organizations) such as the World Wildlife Fund brings access to fresh ideas and insights, and a number of companies now have strategic relationships with these organizations. “Transforming business relationships within the value chain is very important,” says MIT’s Dr. Peter Senge, who also presented at the Crossroads event. “The willingness to work with different sorts of organizations is a big shift,” he says.
Senge described one example of such collaboration: a strategic alliance between multinational manufacturer Unilever and social justice group Oxfam. The two organizations teamed up to carry out a study of Unilever’s poverty footprint in Indonesia. At the time, the manufacturer’s records showed that it employed about 3,000 people as well as 3,000 contract workers in the country. But the Oxfam study revealed “that there were over 130,000 people whose livelihoods depended on their business in Indonesia,” Senge says. That included upstream agricultural growers and street vendors who sold the company’s products. The joint project gave Unilever a wider perspective on its supply chain in Indonesia.
Another way to develop a richer view of the organization’s competitive universe, Buckley believes, is to develop “peripheral vision.” This is the ability to anticipate major market shifts such as changes triggered by resource constraints. For example, office furniture manufacturers are now competing with the energy industry for the wood fiber that generators use to fuel wood-fired power stations. While the trend has been under way for some years, only recently did Buckley become aware of it as a competitive threat in the United States. “In response,” he says, “we are looking to diversify our fiber base.”
Professor Randy Kirchain, head of MIT’s Materials Science and Engineering Lab, offered a similar perspective on the need to extend the company’s worldview. Sudden changes in supply patterns can permanently alter market structures. For example, an unexpected spike in cobalt prices forced companies such as producers of magnets to find alternative materials, and many did not return to the market when prices stabilized again, Kirchain told the conference.
The MIT Materials Science and Engineering Lab has developed models for the availability of critical materials and the impact of supply perturbations on prices, to help companies anticipate sudden changes. A deeper understanding of these market mechanisms can highlight possible mitigation strategies. For example, a study of the market for platinum shows that increasing the recycling of this metal not only lowers the average market price, but also helps to stabilize supplies and make related supply chains more resilient. The Lab has joined forces with the MIT Center for Transportation & Logistics to create the Global Leaders in Environmental Assessment and Performance (LEAP) consortium. LEAP is helping companies to maximize the benefits of their sustainability strategies.
As Senge emphasized, many companies have yet to move beyond the low-hanging fruit of sustainability challenges and address the really tough issues. Some trailblazing organizations have ventured into the more difficult terrain, but in general “we’ve seen nothing yet—this is the beginning of the beginning,” he says.
For more information on the LEAP consortium and the Crossroads event, contact MIT CTL’s Dr. Edgar Blanco.